GST looks a step closer to reality; experts bullish

NEW DELHI: A government panel last week suggested a standard goods and services tax (GST) rate of 17 per cent-18 per cent, which raised the chances of a consensus on the landmark tax reforms bill to get through in the ongoing winter session of Parliament.

The government wants to implement GST from April 1, 2016.

Market participants are bullish about GST as the benefits are going to be immense in terms of reducing allocation of economic resources, creating a nationwide single tax market, widening tax base and eliminating duplicity in the tax structure.

According to official estimates, GST implementation can bring in incremental positive effect of 1.0-1.5 per cent in GDP, depending on the GST rate. A likely range of 18-20 per cent would mean tax saving of 3-4 per cent for many manufacturing segments.

However, a GST rate above 22 per cent could be detrimental for business confidence and growth in the near term. But the committee last week proposed the rate at 17 per cent-18 per cent.

According to an Economic Times report, consumer prices of aerated drinks will rise as much as 20 per cent and their sales will take a hit in case the government goes ahead with the proposal to levy a steep 40 per cent GST on such beverages.

Mayuresh Joshi, Fund Manager of Angel Broking, said if GST goes through, clearly the unorganised sector is going to feel the heat, as it will bring in parity in the tax structure.

In that respect, the organised sector is also going to be a key beneficiary. The second half of FY17 looks very interesting for a whole bunch of these companies. The sin tax that one is really talking about at 40 per cent, and if that comes through, will incrementally hit the cigarette business of ITC.

If you take into account all the different businesses that ITC has got, it might struggle in terms of how earnings may pan out over the next few quarters. ITC might underperform the market, but again the range for ITC is probably well defined between Rs 300 and Rs 310 on the downside and between Rs 350 and Rs 355 at the upside.

T S Harihar, Chief Executive, HRBV Client Solutions, said a GST rate of 15-15.5 per cent may look good as far as industry is concerned, but it looks bad as far as states are concerned. “One needs to understand that whatever revenue shortfall the states face, the Centre will have to compensate for that in the first couple of years,” he said.

“The rate will have to be something which does not create too much of loss as far as state revenues are concerned. A tax rate of 15.5 per cent is much lower. I am given to understand 18 per cent average is what it would be, which will be acceptable to both the states, centre and the businesses,” he said.

The biggest roadblock for GST is going to be the constitutionally of the GST council. If the GST council has too much powers, the Congress in the opposition may not agree to that. So that is going to be a big roadblock, he said.

DK Joshi, Director & Chief Economist of Crisil, said people are talking about the revenue-neutral rate at below 20 per cent, and that is the rate to have.

“I think if they can cross the Rajya Sabha hurdle, we should see the GST sail through. GST has already been diluted and delayed. It is high time that we implement it in whatever shape it is,” Joshi said.

Sunil Duggal, CEO, Dabur India, thinks the proposed GST rate would be beneficial for his company. “Our aggregate tax rate would drop. We also hope that many of our products would come in the lower slab of 12% so which will further be positive for us. But overall, I think the rate is welcome and it almost certainly not pose any additional burden on us,” he said.

Badrish Kulhalli of HDFC Life said the GST has been awaited for long and it would improve efficiencies of the whole taxation process, which will add to the efficiency of production and result in increased productivity. “But I would not call it so much of a big bang, it has been in the works for quite some time,” he said.

“But I would still think it would be a very big positive for the economy if it gets through,” he said.

Currently, the Goods and Services Tax (GST) is levied at 12 per cent on payments made for under-construction property or ready-to-move-in flats where completion certificate has not been issued at the time of sale.